Beneath the housing finance headlines

By Gavin R. Putland

Media coverage of the
October housing finance figures has been bullish. But,
as Macro Business explains, the picture changes if we exclude
refinancing. If we also scale lending to GDP — for want of a
better basis for intertemporal comparisons — we find ourselves
plumbing sub-GFC depths. In the following graph,* seasonally-adjusted
lending for “investment housing - purchase for rent or resale by
individuals”
(from Table 11), aggregated quarterly and scaled to GDP, is shown
by the purple curve, while seasonally-adjusted lending to buyers of
established homes for owner-occupation, similarly aggregated and
scaled, is shown by the blue curve.

Note however that the plotted lending figures for Q4 of 2011 are
based on October alone and therefore do not show any effect of the
interest-rate cuts in November and December. The same caveat attaches
to building approvals (shown in brown).

The house-price index scaled to per-capita GDP (red curve) has been
revised to reflect releases and revisions of GDP figures up to the
September quarter (yellow curve).

The green curve includes RP Data's house and unit sales up to
September. Note that the recent bounce in the number of sales
is not reflected in the total value of loans.

Construction
work done rose by an impressive 12.5% (seasonally adjusted, by
value) in the September quarter. But the rise was almost entirely due
to engineering construction, which in turn was largely
mining-related. Building rose only 0.6%, and the residential
component declined 1.1%.

In view of the surge in construction work done, it is puzzling
that the AIG/HIA Performance of Construction Index for November was
below 50 (indicating contraction) for the
18th consecutive month.

After a slight recovery in
August, new home sales resumed their slide below the “GFC”
trough, falling 3.5% in the month to September, and 18% in the five
months to September.

The strong growth in GDP for Q3
was accounted for by the leading mining States, Western Australia and
Queensland, while the rest of the country stagnated in the wake of the
housing slump.